Regarding personal finance: If there were one piece of advice, one word of wisdom, that trumps all other pieces and words, it would be this:

Personal finance is personal

It’s up to you!

Were you to go to the library and read all of the personal finance books available, you’d find quite a few conflicting opinions. Regarding home purchases: Never go into debt. It’s okay to go into debt for a home. Go into debt for a home for the tax deduction. Staying in debt for the tax deduction is stupid. Borrow as much as you can for as much home as you can possibly afford. Don’t buy a home where your payment is more than 25% of your take-home. Do a 15-year fixed mortgage. Do a 30-yr fixed mortgage. It’s okay to do an ARM, you’ll probably be moving. Never do an ARM.

Regarding credit cards: Never use credit cards. Use credit cards responsibly to build up your credit score. Don’t care about your credit score. Buy my credit score kit. Maximize cashback rewards with credit cards. Use other people’s money to make you wealthy. Get Junior a credit card. Never get Junior a credit card. Cut up your credit cards. Use a credit card only for emergencies.

The list goes on and on and on and on.

On the internet especially you’ll find conflicting wisdom. But whose wisdom is really the best?

Here’s some more advice to consider: Read read read! Read some more. Think, ponder, contemplate on what you’re reading. Read voraciously! Educate yourself concerning insurance, budgeting, home purchasing, investing, taxes, wills, estates, etc. You can do this by reading one guru’s book after another. Just pull those little bits of wisdom from all of the books you’ve read and compile them into your principles of personal finance. Remember, this is about you.

Think about it another way. How can any one guru prescribe a universal answer to questions that involve so many unique variables? One for instance: I was listening to Dave Ramsey probably six months ago and a guy called up saying he had a lease and Dave immediately went into the negatives of leasing – how he was getting fleased, etc.

Well, it turns out Dave had jumped the gun and was totally wrong. The guy said his dad worked for Chrysler and I think his total car costs came to something like $150 per month. It was the sweetest lease you’d ever heard of. I guess you could say it was unheard of. Much to Dave’s credit, he admitted to the guy that he had a very unique situation and that it was a great deal.

Imagine that. Dave said in that specific situation leasing was okay.

What about if you lived in California in 2002 and wanted to buy a home? Could you have afforded the guidelines given by many gurus of an X debt-to-income ratio? Probably not. But had you not stretched yourself a bit and purchased, you would’ve missed out on an absolutely huge (some would say irrational) run-up in home prices that would’ve probably removed you from the housing market for the next decade. In that regard, you made the right choice going against some of the gurus’ guidelines.

Nothing is black and white. That’s why it’s so important to be educated in these matters! You want to have enough knowledge that you can take all of the variables in your life that only you know about (these include emotional variables, variables unique to you because of your past experiences, externally unique variables such as a mother you need to take care of, a disabled child, etc.) and come to the right decision. No guru can speak directly to your situation unless they know all the facts and circumstances. And they don’t.

As mentioned above, your course of action is to glean all the wisdom you can from all of these (mostly) wise people. Armed with that wisdom, you make the choice for your personal finances.

I would recommend you begin compiling some sort of personal finance constitution. This should include overarching principles that guide your actions regarding money. I’ll share a few of mine to get you started.

I will:

1. Spend less than I earn.
2. Actively budget my money, which includes:
• Recording what I earn and what I spend.
• Allocating what I have earned to appropriate spending categories.
• Working on the budget monthly with my wife.
3. Invest my money.
4. Diversify my investments, which may include:
• Stock market mutual funds, index funds, or ETFs.
• Real estate.
• Private businesses.
5. Give regularly.
6. Never expect something for nothing.
7. Never borrow money to purchase a depreciating asset.
8. Never gamble.

That’s certainly not complete, and I may update it from time to time, but it’s a start. Some of th gurus would disagree with me, but they’re wrong. Because this is mine, which makes it right.

RSS feed for comments. TrackBack URL